June 30, 2015 - MDT Pro Tips A.M.
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points.
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The selling pressure across the globe continued in a massive fashion yesterday.? The DAX was down 3.6% and the FTSE fell 2%.
Our markets fell just over 2% across the board.
I want to start by making a few general comments.? The first is that when I share VERY specific price levels I anticipate they should act as support or resistance.
And when a level gets violated, my assumption is that it will act as a ceiling.
For example, yesterday I mentioned that you need to watch where the VIX opens.? An open above 15.63 tells me that it should act as support.
Yesterday, the VIX opened at 16.70 above the 15.63 level.
At that point, you would expect the 15.63 level to act as support on a pullback.
The VIX had a slight pullback in the morning to 15.93, which was 30 cents above the level.
Now here is the lesson.
It does not ALWAYS happen that price will come EXACTLY to these levels, similar to the example I showed on the webinar two weeks ago.
Consider these levels as areas of support or resistance.? Not finite numbers that the market HAS to retest.
It is similar to the 200 ema, which I expect to act as support once it is violated.? If price holds above the 200 ema, that is good enough for government work. (As opposed to stopping right on the ema.)
The point is if you bought VXX calls when it pulled back yesterday, your stop is just under 15.63.? Of course you would prefer it get closer to the 15.63 line, because your risk is smaller.
But had you bought when it pulled back to 15.93, your risk was still only 30 cents.
An important point here is that if the VIX closed under 15.63 you would wanted to exit any longs.
If you bought longer term VXX calls, you no doubt are sitting on a triple.? Follow the levels for an exit and sell into strength.
A day like yesterday makes me salivate.? Why?
The price action was akin to a capitulation day.? A capitulation day is a selling climax.
I measure a selling climax when the down to up volume on the New York Stock Exchange exceeds 9 to 1.
Yesterday, the reading was 21.51 to 1.
That is the biggest selling climax I have seen since June 21, 2013, when it read 20.19 to 1.? By the way, after that selling climax the market went on to make new highs.
Now here is the thing.? It is not necessarily true that the market will reverse the day of the climax.? But, it should within a few days.? Then we will have opportunity again.
Pre open, the markets are up.? Quite frankly, I would prefer to see them gap down and that would be the opportunity.
Based on them being up, I would expect a rally and a sell off at some point to retest yesterday's low.
Continue to use to VIX to help time the turning points.
Here are the key levels for the markets.
Stocks...
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VIX:? Key levels are 18.75 to 15.63
Short term levels:? 19.53 and 17.96
Yesterday, the VIX closed at 18.85, two cents under the 18.75 level. ?
20.31 would be a difficult level for the VIX to take out.
If it does, expect more downside in the S & P 500.
16.41 should be a level of support.
S & P 500 Cash Index: ?
Key levels are 2,093.80, 2,062.50 and 2,031.30
Not only did the S & P 500 take out the 2,093.50 level, but it took out 2,062.50, closing at 2,057.64.
Yesterday, I said "The S & P 500 could drop down to 2,062.50 and the bull market would still be intact.? In fact, a reversal around that area would create opportunity."
Looks like we are here already.
2,054.68 and 2,039.12 should be a support level.? The next major level to the downside is 2,031.30.
Nasd 100 (QQQ):? Even thought the QQQ and the NASD composite had been showing the most strength of all the major markets, it was certainly not immune to yesterday's selling.
The QQQ closed yesterday at 106.69, just above the 106.25 support level.
Support is at 106.25 and 105.46.? If 105.46 cannot hold, it could drop to 103.13.
Resistance is at 107.81.
TLT:? The TLT bounced on a flight to quality yesterday, closing at 118.28, or about 50 cents under the 118.75 level.
117.96 should be support. And resistance is at 119.53.
Major levels are 118.75 and 115.63.
The level after 118.75 is the 122 area.
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GLD: Key levels are 115.63, 114.06, and 112.50.
The GLD continues to hover around the 112.50 level.
112.89 is the level just above 112.50.? And 112.11 is level just under it.
Yesterday, the GLD closed at 113.07, or 18 cents above the 112.89 level.? A close above 112.89 today and the GLD should move up to 114.
A point to mention here is that there is divergence between the miners and the metal.? The miners have been heading down, as the metal popped.
XLE: Key levels are 78.13, 75, and 71.88
The XLE did retest the 75 level, as expected and closed yesterday at 74.64.
74.22 should be support.? Two closes under that level, and the XLE should drop to 71.88.
Watch list:
Bullish Stocks: CI, AET, DPZ, UHS, NKE, FB, SHOO, DE, LLY
Bearish Stocks: PCLN, CMI, DDS, MON, CVX, WDC, SNDK, WYNN, GMCR, SNDK and QCOM
